Can an insurer be added as a defendant by the plaintiff to determine a coverage issue?

When an insurer denies coverage to its insured, and the insured elects not to contest the denial, does this mean that others involved in the action cannot test the denial of coverage?

Can a co-defendant (particularly an uninsured carrier in the MVA context) or the plaintiff add the denying insurer to the action in order to test the voracity of the denial?

The answer to this point had seemed to be “no”. With no direct privity of contract between the denying insurer and the other parties to the action, the insurer would seem to have a valid legal basis for refusing to be added into the action. The recent decision of Master Roger in Williams v. Pintar challenges these assumptions.

Zdenko Pintar was the defendant in an action[1] arising out of a motor vehicle accident. His automobile insurer, Jevco, denied coverage and added itself as a statutory third party. Pintar did not defend and was noted in default. The plaintiff, likely worried about ending up with only a paper judgment against Pintar, successfully moved to have Jevco added as a defendant, seeking a declaration that there was coverage available for Pintar.

The normal process historically would have been for the plaintiff to obtain judgment against the uninsured defendant and then commence an application against the defendant’s insurer under section 258.1 (if the policy was for automobile insurance) or 132 (all other types of insurance) of the Insurance Act to have the insurer pay the unrecoverable judgment. During that proceeding, the coverage defence of the insurer would be tested.

One of Jevco’s principle arguments in challenging the motion to be added as a defendant was that an insurer is not a proper defendant in the action until judgment is obtained against its insured. While Master Roger agreed, in part, with Jevco’s argument, he ultimately found that the court had broad jurisdiction to grant declaratory relief. Citing the Supreme Court of Canada in Canada v. Solosky,[2] he said:

Declaratory relief is a remedy neither constrained by form nor bounded by substantive content, which avails persons sharing a legal relationship, in respect of which a ‘real issue’ concerning the relative interests of each has been raised and falls to be determined.

The court found that the proposed amendment disclosed a tenable form of declaratory relief.

This would seem to provide a more efficient means of resolving coverage issues, as there would be no reason why the coverage issue could not be litigated at the same time as the underlying action, when the “related” issues in the main action are being deliberated.   Doing so at the early stages also serves to keep an insurer “honest” as its denial can be tested by the other parties to the litigation in circumstances where the insurer’s own insured may not have the financial means to retain counsel and contest a denial of coverage. There is efficiency for judicial resources as well, as, instead of two separate actions, (1) the initial trial, and (2), the s. 132 application, there would only need to be one trial.

While this decision provides guidance, it also raises a number of questions. First and foremost, one wonders how these issues, if they are to be tried together, can be presented in the context of a jury trial. In such cases, bifurcation may be needed in order to separate the coverage issues from those of liability and damages, though this may undermine the efficacy highlighted by Master Roger as a reason for his decision. One also wonders if Jevco would have been in a better position to fight the amendment if it had not added itself as a statutory third party. Again, efficacy as a driving factor may have been undermined if the proposed defendant was not already committed to the action.   It is also not clear if a co-defendant could rely on the Williams decision to add an insurer to an action where the insurer was not already present as a statutory third party, though the door seems to be swinging open.

No word yet on whether or not Jevco plans to appeal, though we will continue to follow developments.

[1] Williams v. Pintar, 2014 ONSC 1606.

[2] [1980] 1 S.C.R. 821 at para. 8.